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Invest UK but assess the risk

Invest UK is the rallying call for pension schemes to engage especially through small companies and start ups. Not only could it boost pension pots it could encourage business to base here. But who is prepared to take the risk? Stephanie Spicer writes.

There are four problems zipping around currently that could be marshalled into a very good solution: how to encourage the young to invest; how to encourage investors to invest in start-up, small companies and UK plc generally, how to encourage pension schemes to do the same, and how to encourage companies to list on the London Stock Exchange and base operations here.

Each issue carries its own hurdles.

Investing is not top of many young people’s lists – spare cash is not that readily available – and yet the attraction of cryptocurrency offers excitement it seems and the potential for fast or vast profits. If cryptocurrency is attractive, this suggests the young are prepared to take some risks with their investing – so let’s try to educate them about things which could be deemed ‘exciting’ but are more tangible, i.e., small company, start-up, tech, entrepreneurial businesses looking for funding.

Pension funds have a lot of money to invest but for various reasons are not investing in less liquid and more risky assets and very often also not in the UK. Calls are being made to change this mindset although it has to be borne in mind that broadly this pension money sits under two sets of policy: defined benefit schemes, which guarantee the pension member their pension and defined contribution schemes – which don’t. For the latter each individual can choose their level of risk. If that individual has forty or fifty years to invest over, why should they not consider the potential growth options which stem from scale-up businesses?

That’s always supposing UK businesses see a future in the UK. Lots don’t because they see the opportunity for better valuations elsewhere and lots of companies that would like to come and list in London and present opportunities for investors don’t, because of regulatory restrictions. Citing the problems British fintech company Revolut has had in getting a full banking licence in the UK, Professor Stefan Allesch-Taylor, entrepreneur and Professor of Practice at King’s College London recently wrote: ‘Why do we care about the toings and froings between a multi-billion-pound UK fintech company and our regulators? Simply because other companies considering London as a home will be watching the process, whatever the outcome.’

Pictured above, Nicholas Lyons The Lord Mayor of London, head of the City of London Corporation (until his term ends and he returns to his role as chairman of Phoenix Group) in its report Powerful Pensions Unlocking Defined Contribution capital for UK tech growth March 2023 has written: ‘If we want to keep firms here in the UK, we need to make sure they can get the investment here in the UK.’ And he proposes this is facilitated by a Future Growth Fund: ‘Such a fund would enable investment via private equity into fintech, life sciences, biotech, and green technology. By channelling this investment, we can create growth and in turn support jobs and prosperity across the whole UK economy,’ he writes. He proposes the investment comes from the defined contribution pension schemes.

All the hurdles to these issues have the same root – that of risk. Regulators, businesses, investors have to work together to calculate that risk and then make a calculated risk, to benefit all.

Stephanie Spicer is head of content at Quill PR.

Photo courtesy of City of London Corporation